Failed bond sale

Just how significant was the failure today of the sale of government bonds?

It is the first time that it has happened since 1995 and many will see it partly as a reaction to Mervyn King's comments yesterday.

The U.K. failed to find enough buyers for £1.75 billion of bonds coming up short by around £100m.

Bonds are the way that the government will fund the public expenditure deficit over the next two years and hopes to sell £146b this year and £147b next year.

According to Bill Jones, professor of politics at Liverpool Hope University. Brown’s “whole strategy is based on borrowing and now he can’t get anyone to buy his gilts. This means the prospect of going cap in hand to the IMF hovers increasingly into view.”

Part of the reason could also be laid at the door of yesterday's inflation figures as potential investors were wary of buying debt that would not mature for four decades.

Ominous signs?

Bankrupt Britain

The Sunday Times covers the report of Malcolm Offord - a City fund manager with 21 years experience and an adviser to the Centre for Social Justice.

The report is very worrying as the paper says

he calculates that in the absence of government action, the national debt will balloon to more than 150% of gross domestic product over the next 10 years, compared with Labour’s “ceiling”, now breached, of 40%. The priority, he says, is to reverse the “profligate” spending that gave Britain an unacceptably big budget deficit at the start of the recession.

Over at Conservative Home-Tim Montgomerie summarises the report and maybe one thing that is being missed is the following

Tax receipts are now in free fall. To put this in context, in their peak year of 2007-08, tax receipts from the financial and housing sectors alone combined to contribute £60 billion to the Treasury. The Chancellor’s forecast that tax receipts in the worst forecast recession since the War will fall only by £10 billion is likely to be unrealistic.

Insolvency up

I find that Americans who are aware other economies exist have one source of comfort: the US is in bad shape, but the UK is worse.

That's the view of Martin Wolf writing in this morning's FT and if this morning's bankrupcy figures ae anything to go by then it is hardly suprising.

If you haven't as yet heard the news,the last three months of 2008 saw 2,428 corporate insolvencies,that is up 220 per cent on the same period in 2008 and added to that individual insolvency were up 19 per cent.

Back though to Martin who makes the point that

the UK entered the current crisis with one of the largest structural budget deficits in the industrial world and a bigger public debt than most; it had also done less to reduce debt and borrowing than most since 1997;

But feels that Gordon Brown's fiscal solutions are correct though with the risk that

If the economy were also to follow the path of Morgan Stanley’s “pessimistic case” – under which GDP in 2012-13 would be only marginally higher than in 2007-08 – the current budget deficit would remain close to 8 per cent of GDP, despite the squeeze on public spending. Net public debt would then be on its way to more than 100 per cent of GDP. It is hard to believe the government of an open economy could get away with this in peacetime.

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